land of berlin · the land of berlin aaa rating is underpinned by a very stable and supportive...

Land of Berlin Rating Report

14 July 2017 1/14

Rating Rationale and Outlook: The AAA rating reflects the very supportive German

institutional framework under which Berlin operates, solid economic growth, commitment

to fiscal consolidation, firm downward trajectory of the Land’s direct debt, and strong

liquidity management. However, these supportive factors are balanced by challenges

related to still-high direct debt, and limited financial flexibility. In addition, though

contingent liabilities of the City are sizeable, they largely carry low risk for Berlin’s

balance sheet. The Stable Outlook reflects Scope’s assessment that the risks the Land

of Berlin faces remain fairly balanced.

The Land of Berlin AAA rating is underpinned by a very stable and supportive German

institutional system characterised by a very strong revenue equalisation system together

with the federal solidarity principle. This ensures a high degree of cohesion among

Länder and prevents individual Länder from getting into financial difficulties. The system

also benefits from a safe and predictable cash management system designed to

guarantee efficiency and liquidity at any point in time, and strong access to deep capital

markets. It is Scope’s view that these factors align the Länder and the federal

government (the Bund) credit profiles.

Positive rating-change drivers

Negative rating-change drivers

Not applicable Downgrade of Germany’s sovereign

rating

Material changes to the institutional

framework

14 July 2017 Sub-Sovereign Rating


Ratings & Outlook

Foreign currency

Long-term issuer rating AAA/Stable

Senior unsecured debt AAA/Stable

Short-term issuer rating S-1+/Stable

Local currency

Long-term issuer rating AAA/Stable

Senior unsecured debt AAA/Stable

Short-term issuer rating S-1+/Stable

Lead analyst

Ilona Dmitrieva

+44 02034570445

[email protected]

John Opie

+49 6966773-13

[email protected]

Levon Kameryan

+49 69 6677389-21

[email protected]

Team leader

Dr Giacomo Barisone

+49 69 6677389-22

[email protected]

Credit strengths

Credit weaknesses

Highly supportive institutional

framework

Commitment to fiscal consolidation

Solid liquidity management

Excellent capital market access

Favourable debt profile

Downward debt trajectory

High direct debt levels

Limited financial flexibility

Sizeable, though largely low-risk,

contingent liabilities

Scope Ratings AG

Neue Mainzer Straße 66-68

60311 Frankfurt am Main

Phone + 49 69 6677389 0

Headquarters

Lennéstraße 5

10785 Berlin

Phone +49 30 27891 0

Fax +49 30 27891 100

[email protected]

www.scoperatings.com

Bloomberg: SCOP

AAA STABLE

OUTLOOK

mailto:[email protected]





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14 July 2017 2/14

Institutional framework

The Land of Berlin benefits from an extremely stable and supportive German institutional

framework, including a unique and well-designed solidarity system. The key elements of

the system are a very strong institutional framework of revenue equalisation, a legally

tested extraordinary support mechanism, a safe cash management system designed to

guarantee efficiency and liquidity at all times, and an access to deep capital markets. It is

Scope’s view that these mechanisms align the credit profiles of the Länder (federal

states) and the Bund (federal government).

The highly effective revenue equalisation mechanism achieves a multi-layer re-

distribution of revenue and is designed to bring the financial strength of weaker German

Länder closer to that of stronger ones, using budget revenue per capita as its metric.

Apart from per-capita-based equalisation transfers, there are also supplementary federal

grants distributed on a non-per-capita basis. All of these mechanisms assist Länder in a

similar position to Berlin, which is financially weaker than the German average and

located in the former East German region. Moreover, the equalisation mechanism delinks

the Land’s credit profile from its local economic fundamental metrics, aligning them

instead with the macroeconomic characteristics of the whole country.

The recent reform of the equalisation mechanism, to be introduced in 2020, will abolish

the explicit and direct equalization transfers among Länder and increase the role of the

Bund. Fiscal equalisation will be achieved mainly through a higher proportion of allocation

of the Länder’s share of VAT revenue. In addition, the Länder will also receive a higher

compensation through vertical transfers from the Bund. Moreover, the reform will

redistribute some competencies between Länder and the Bund. Overall the reform, in

Scope’s view, further underpins the strength of German fiscal federalism ensuring

compensation for financial disparities across Länder.

In addition to the equalisation system, a solidarity principle (Bundestreueprinzip) is

enshrined in German Basic Law, which ensures that the Bund and Länder are jointly

responsible for the provision of extraordinary support if required by any Land under

financial distress. This principle, which has been confirmed by a constitutional court

ruling, means that the Bund and the German Länder share common interests. The entire

German federal system must be in a solid financial position in order to fulfil its duties and

meet its responsibilities on all levels.

The predictability and stability of the institutional framework within which the Land of

Berlin operates is very high. This considerable degree of predictability is ensured by the

fact that the equalisation mechanism, its tax-sharing arrangements and expenditure

mandates are enshrined in German Basic Law. Furthermore, as the Länder collectively

form the legislative upper chamber, they are able to influence arrangements with the

Bund on expenditure mandate-sharing and revenue allocated to the Länder. Each Land

plays a crucial national role in the delivery of public services and governance functions

mandated by the Bund, further underlining the position and influence of the Länder within

the German political system.

The Land of Berlin belongs to the second layer of German government

Strong institutional framework underpins Berlin’s credit

Table of Content

Institutional framework ................. 1

Economy and demography .......... 3

Budgetary performance ................ 3

Operating revenue ....................... 4

Operating expenditure .................. 5

Capital expenditure ...................... 6

Debt and debt trends .................... 7

Liquidity management .................. 8

Contingent liabilities ..................... 8

Local administration and politics .. 9


14 July 2017 3/14

Economy and demography

Berlin is both the capital and the largest city in Germany, with 3.5m inhabitants at end-

2015. Berlin’s population is growing steadily, being an attractive destination for migrants.

The population is expected to reach more than 3.8 m by 20301.

Though Berlin’s GDP per capita is still lower than the national average, this gap has

narrowed over the last seven years. In 2015 Berlin’s GDP per capita stood at 95% of the

national average compared to 93.3% in 2007. Its service-oriented economy – 85% of

GVA is generated by services versus 69% nationally; a significant share of public-sector

activity is in Berlin, at 31% of the total in 2016 – is growing at a higher pace than the

national average. Tourism, IT and communication services are among the most dynamic

sectors. Last year there were more than 12m visitors to the city, who also contributed to

31m overnight stays. Industrial production also contributed positively, with a rise in the

manufacturing sector’s export ratios.

Figure 1: Real GDP growth, Berlin vs. Germany

Figure 2: Berlin population from 2014 to 2030 (mn)

Source: Berlin Senate Department for Economics, Energy and Public Enterprises

Source: Berlin Senate Department for Urban Development and Housing

In 2016 Berlin's GDP expanded by 2.7%, outperforming the federal average of 1.9%.

Should growth continue above the national average, the GDP-per-capita gap would

reduce even further. In addition, strong economic growth led to a reduction in the Land’s

unemployment rate, to 9.8% in 2016 from almost 12% in 2012. This momentum has

helped to substantially reduce structural long-term unemployment by 34% since 2012,

Budgetary performance

After years of successive deficits, Berlin’s budgetary performance has improved

substantially since 2012, reaching a current surplus of 5% in 2012, which has since

increased to 8.5% in 2016. The Land was able to achieve its positive current balance

thanks to a marked strengthening of its operating balance, which rose to 14.7% in 2012,

from 8.2% in 2010 and 8.5% in 2011. This has enhanced Berlin’s ability not only to fund

its operating expenses with operating revenue but also to generate extra revenue to

cover interest payments and some capital expenditure. Significantly, the balance before

debt has also been positive since 2012, indicating a gradual reduction in direct debt.

Berlin’s current administration intends to continue its strong budgetary performance in

2017-2020 as per the Land’s financial plan. The aim until 2020 is to maintain operating

balances at around 10%, realise current surpluses and keep balances before debt close

1 Evaluation der Bevölkerungsprognose Berlin, June 2017.

-6

-4

-2

0

2

4

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Berlin Germany

3.40

3.45

3.50

3.55

3.60

3.65

3.70

3.75

3.80

3.85

14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Berlin is a growing city

Though GDP per capita is lower than the national average …

…the gap is decreasing

Strong budget performance is to continue in 2017-2020


14 July 2017 4/14

to zero, thus preventing the Land from taking on new debt. This will create a solid

foundation for the ‘debt brake’ rule2, which will be implemented for the Länder in 2020.

Figure 3: Berlin’s budget balances 2010-2020

Source: Land of Berlin, Scope calculations

Operating revenue

From 2010 to 2016, Berlin’s operating revenue grew by approximately 5% on average,

driven by taxes (about 58% in 2016), transfers (17%) and other operating revenue (6%).

Significantly, the Land’s operating revenue grew in both 2012 and 2013, the years in

which Germany’s GDP stagnated, underlining the support provided by the equalisation

system at Länder level.

The bulk of taxes such as personal income tax, value-added tax and corporate tax

represent shared taxes, which the Land receives in line with constitutional arrangements

between the Länder and the Bund. These taxes exhibit many features attributable to

budgetary transfers, as though they initially flow to Berlin’s budget, later on they are

redistributed according to the revenue-sharing agreements at national level, essentially

weakening their link to the Land’s economic performance. The most heavily redistributed

tax is value-added tax, which made up 17% of the Berlin’s operating revenue in 2016.

Regional and municipal taxes, which are fully linked to the performance of the local

economy, accounted for 16% of the Land’s operating revenue in 2016. It should be noted

that Berlin has a higher proportion of these taxes in its revenue due to its combined

status as a Land and municipality with taxes allocated to these two levels of government.

The Land’s transfer revenue is mostly made up of horizontal equalisation transfers and

vertical transfers. The former are provided by other Länder and aim at bringing Berlin’s

financial capacity up to the German Länder average. The latter come from the Bund,

which combines general equalisation transfers with special purpose grants aimed at

strengthening Berlin’s finances in particular areas, for instance infrastructure, or covering

additional costs associated with functions which the Land undertakes as the capital city.

A small portion of the special-purpose grants is associated with payments stipulated by

the Solidarity Pact II, which will be phased out in 2020.

2 The debt brake is a legal framework that prohibits deficits from 2020 onwards; article 109 (3) of the Basic Law stipulates that the Länder may incur deficits in case of recessions or natural disasters provided they pass respective legislation at the Land level The debt acquired as a result of those circumstances should be repaid as soon as they improve.

-10%

-5%

0%

5%

10%

15%

20%

2010 2011 2012 2013 2014 2015 2016 2017b 2018f 2019f 2020f

Operating balance/operating revenue, %

Current balance/current revenue, %

Balance before debt movement/total revenue, %

Operating revenue growth is driven by strong tax revenue expansion


14 July 2017 5/14

Figure 4: Berlin’s operating revenue breakdown for 2016


The Land expects its operating revenue to grow at about 3% on average during 2018-

2020, supported mostly by the steady rise in tax and transfer revenues. The former is

anticipated to increase largely in line with Germany’s nominal GDP, whereas the latter

should follow its historical growth rate. Scope notes that the overhaul of the German

Länder equalisation system due in 2020 will have a neutral or even slightly positive

impact on the Land’s operating revenue, thanks to the per-capita principle of transfer

allocation. This principle benefits Länder with growing populations, like Berlin, and helps

to mitigate the impact of Solidarity Pact II grants being phased out in 2020. The Land has

budgeted zero growth for 2017 operating revenue, which, in Scope’s view, is a

conservative approach. As of May 2017 Berlin expects to exceed its 2017 revenue

targets.

Operating expenditure

From 2010 to 2016 the Land was able to keep its operating expenditure under control,

which grew at a slower pace than revenue – at 3.6% vs 5% on average. The Land’s

operating expenditure breakdown reveals quite an inflexible structure, in which

expenditure is difficult to reduce should revenue fall significantly. Moreover, certain

external factors drive up operating expenditures. At the same time, the Land has been

exploring options for keeping a handle on rising expenditures, and intends to implement

these in future.

Berlin’s operating expenditure largely comprises personnel costs (about 36% of operating

expenditure in 2016) and transfers to companies (32%). The remainder consists of

materials and various administrative costs. Personnel expenditure increased by 3% on

average during 2010-2016 and is likely to accelerate going forward. This increase is

associated with the Land’s growing population, which in turn necessitates more public-

sector employees for local administrative purposes. Berlin’s population is set to grow

further, putting more pressure on the Land’s administrative resources. Indeed, after

bottoming out in 2014 at 111,512 employees, employment increased to 112,211 (+0.6%)

in 2015, and 113,330 (+1%) in 20163. Another contributor to the rising personnel costs is

the prolonged stagnation of the Land’s public-sector wages: in real terms, the same

3 Data for this section is: Beschäftigte im unmittelbaren Landesdienst Berlin im Januar 2016, Statistikstelle Personal bei der Senatsverwaltung für Finanzen, Land Berlin, retrieved June 2016

8.59

2.02

5.52

4.30

0.86

4.08

14.77

Transfers Other Income tax VAT Corporate tax Reg. and munic. tax

Neutral or even slightly positive impact from the overhaul of equalisation system

Personnel cost growth rate is likely to accelerate


14 July 2017 6/14

levels for at least the last six years. An increase in wages to ensure key administrative

personnel are maintained in the Land’s offices is unavoidable.

Figure 5: Berlin’s operating expenditure breakdown in 2016


The acceleration of staff costs, in Scope’s view, is likely to be moderate due to tight

budgetary control and changes in personnel structure aimed at saving costs. The latter

involves a reduction in the number of highly paid civil servants in favour of non-civil

servant employees with lower level of remunerations. Savings on personnel expenses will

also be achieved by a shift towards a younger workforce, away from more expensive

middle-aged employees. Overall, the Land expects personnel expenditure will grow at

around 4% on average during 2017-2020, a level only slightly higher than that during the

previous six years.

Despite the rising trend of personnel costs, Scope expects Berlin to continue to keep a

grip on its operating expenditure, by containing the growth rate of ‘other operating

expenditure’ items, also supported by low interest rates leading to declining debt interest

payments. Though expected operating expenditure is likely to outpace operating revenue

through to 2020 (in line with the Land’s financial plan), the Land is committed to

maintaining strong budgetary performance with no new debt being accumulated.

Capital expenditure

During 2010-2016 Berlin’s capital expenditure relative to total expenditure increased

constantly, indicating that the Land can benefit from more flexibility in this regard. A

higher level of capital expenditures provides a buffer in times of budgetary revenue

slowdown.

The increase in capital expenditure to total expenditure during 2014-2015, and especially

the jump during 2015-2016, was associated with establishment of an investment fund,

SIWA/NA (Sondervermögen Investitionen in die Wachsende Stadt and

Nachhaltigkeitsfonds), which involves a portion of past budget surpluses generated by

the Land being allocated to the fund for investment in schools, hospitals, transport

infrastructure and refugee accommodation.

7.8

7.2 0.6

6.26.9

Personnel Materials Subsidies to public sec. Subsidies to other sec.

Despite growing staff costs, operating expenditure is likely to be contained

Berlin has improved its expenditure flexibility


14 July 2017 7/14

Debt and debt trends

Berlin’s relatively high stock of public debt is a legacy of the high costs of the unification

process, reflecting also overly optimistic economic and population growth expectations at

that time. Strong investment in construction did not yield expected returns and weighed

heavily on the Land’s balance sheet. Today about one-third of Berlin’s direct debt can be

attributed to that period. However, the recent track record of fiscal ratios, as well as a

growing population and average economic growth above the national level, indicate

Berlin’s intrinsic potential to grow out of the debt stock.

At the end of 2016 Berlin’s direct debt stood at EUR 59.4bn, or 234% of operating

revenue. Though this is very high by national as well as international standards, it has

been on a firm downward trend since 2010, driven by positive balances before debt and

buoyant operating revenue growth. Under Berlin’s medium-term financial plan until 2020,

Scope expects this trajectory to continue, with debt reaching slightly above 200% to

operating revenue at YE 2020.

The Land’s debt-affordability metric, as measured by the interest-to-revenue ratio, has

improved significantly. In 2016 the Land allocated 5.5% of its operating revenue to

interest payments, compared to 11.5% in 2010. This improvement is underpinned by the

low interest rate environment and a gradual decrease in outstanding debt.

The Land has favourable debt profile predominately composed of bond issues, though

bank loans still play a role (about a third of the total direct debt). The average market debt

maturity is about seven years at YE 2016, pointing to sizeable proportion of long-term

debt in total. Indeed, market debt with a maturity of over four years makes up slightly

more than 60% of the Land’s outstanding debt. The debt repayment profile is balanced,

with almost 46% of debt to be repaid within next five years. The Land’s exposure to forex

risk is minimal. At the end of 2016 the share of debt denominated in Swiss francs and

Japanese yen was minimal and stood at 0.4% of direct debt. Almost 76% of the direct

debt bears fixed interest rates, about 10% of floating-rate debt is hedged, leaving a

relatively small portion of unhedged debt (14%).

Figure 6: Berlin’s debt position and interest payments Figure 7: German Länder: direct debt-to-revenue ratio in 2016

Source: Land of, Berlin Scope calculations Source: Ministry of Finance, Federal Statistical Office, Scope calculations

Berlin has very good capital market access and improving financing conditions. At

YE 2016 Berlin was able to lengthen its weighted maturity debt profile to 7.1 years from

6.7 years at YE 2015 and decrease its cost of funding to an annual average of 1.95% in

2016 from 3.3% in 2010.

0%

2%

4%

6%

8%

10%

12%

14%

0%

50%

100%

150%

200%

250%

300%

350%

2010 2011 2012 2013 2014 2015 2016 2017b 2018f 2019f 2020f

Direct debt, % operating revenue Interest paid/operating revenue, %

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

High, albeit declining, direct debt

Favourable debt profile


14 July 2017 8/14

Liquidity management

The Land’s liquidity management is sound, the key elements of which consist of thorough

inter-year cash planning and the availability of various sources of liquidity. The Land’s

cash flows, especially the inflows, are prone to seasonality driven largely by the tax

calendar. The sources of liquidity include money market transactions among the German

Länder, which place their excess liquidity among themselves and act as lenders, as well

as credit lines with the German federal treasury and a number of commercial banks. The

Land’s money market authorisation is 13% of budgeted revenue, or around EUR 3bn,

which has never been fully used. The Land keeps its main account with the Bundesbank

and a number of secondary accounts with major commercial banks.

Contingent liabilities

Guarantees

At end-2016 the amount of the Land’s guarantees stood at EUR 5.9bn (257% of

operating revenue, including direct debt and guarantees), which has been steadily

declining from EUR 26.6bn in 2010. Entities and projects which benefit from the Land’s

guarantees carry a limited risk of their obligations crystallising on Berlin’s balance sheet.

The reduction in guarantees has also been significant.

A third of the outstanding guarantees (EUR 1.99bn) relates to Bankgesellschaft, a bad

bank or a wind-down entity, through which real estate assets are being divested to repay

outstanding liabilities. The favourable economic outlook, which would drive up property

values, would also make it less likely that the Land has to honour these guarantees.

Another third (EUR 1.88bn) consist of guarantees issued to social housing associations,

which generate stable income from rent and flat sales. The rest is split between the local

water-supply company (EUR 1.1bn) and the Berlin-Brandenburg airport (EUR 0.84bn).

Participation in local companies

Berlin is unique among the Länder as it has a very high degree of participation in local

companies (41 as of 2016), many of which are majority owned by the Land. Berlin-

Brandenburg airport is the exception, with the Land owning 37%. High level of

participation in those companies is a reflection of a range of function that Berlin has as a

big city with capital status. These companies’ outstanding liabilities totalled EUR 32.9bn

in 2016, which, together with direct debt and guarantees, amounted to 387% of the

Land’s operating revenue. It should be noted that the Land guarantees a minor part of

these liabilities, thereby lessening the total exposure slightly.

The largest individual total liability balances are those with Investionsbank Berlin

(development bank, EUR 17bn), Berliner Wasserbetriebe (water supply, EUR 4.8bn),

BVG (transport, EUR 0.87bn), BSR (waste disposal, EUR 0.26bn), as well as several

housing companies owning over 350,000 flats (EUR 9.4bn). Those entities all have safe

business models, which limit the risk of their liabilities materialising on the Land’s balance

sheet. In addition, Investionsbank Berlin has a conservative lending policy, focusing

exclusively on municipalities and social real estate projects. Public companies providing

water and waste disposal are profitable, self-supporting and well capitalised; while the

transport company, BVG, is subsidised by the Land to minimise its recourse to debt

financing. In addition, thanks to Berlin’s population growth, public services undertaken by

those companies are in demand, which in turn ensures the stability of their

revenue inflows.

Similar to other Länder, liquidity risk for Berlin is negligible

The Land has significantly reduced its exposure to risk associated with guarantees

Low-risk profile of Berlin’s majority owned companies


14 July 2017 9/14

The exception to this general situation is the new and not-yet-operational Berlin-

Brandenburg Airport4. Scope notes that uncertainties around the project, with original

budget of EUR 2bn increasing to EUR 5.4bn by May 2017 and expected to reach EUR

6.5bn stemming from significant cost overruns and ongoing delays with completion, are

exposing the Land to additional costs. This, however, are mitigated by a number of

factors. First, the Land holds 37% in the project and shares financial responsibilities with

the Land of Brandenburg (37%) as well as the Federal Republic of Germany (26%).

Second, Berlin has set aside reserves of EUR 104m for the eventual contingent liabilities

related to the airport.

Pension liabilities

Berlin’s pension liabilities are sizeable and set to rise further in the medium to long term,

putting pressure on revenues. In 2016 the Land had to pay about EUR 1.6bn of pensions

(about 6% of 2016 operating revenue), which is expected to rise to approximately

EUR 1.7bn in 2017. These obligations are being pushed up by the increasing number of

retirees, whose pensions are funded by Berlin. Indeed, the number of retirees is expected

to increase continuously, from 55,930 in 2014 to 70,960 in 2031 5 . Going forward,

however, this trend is likely to reverse: after 2030 the number of retirees is expected to

decrease, due to the reduction in the number of civil servants in education and in full-time

positions, as well as the replacement of civil servants with non-civil servants.

To weather the pressure from pension obligations, Berlin has created reserves (required

by German law6), which are expected to reach EUR 914.8m in 2017. The fund does not

cover future liabilities as such, but serves primarily as a buffer, ensuring payments to

pensioners are not placed into question during an economic downturn when revenues are

lower. These reserves have been tapped only once since being created in 1999

(EUR 650,000 in 2005) and are conservatively invested with low costs and at low returns.

While returns in the past have stood at 4.45%, the current low interest rates will most

likely result in significantly lower returns going forward.

Local administration and politics

Following the regional elections in September 2016 the Berlin’s government is ruled by a

coalition of three parties with 92 of 160 seats: the Social Democratic Party (SPD) (38

seats), the Left Party (27) and the Alliance ‘90/Green Party (27 seats). The new coalition

led by the mayor Michael Muller replaced the two-party one of the Social and Christian

Democrats (SPD and Christian Democratic Union or CDU), with the CDU reaching only

31 seats, having lost seats to the Alternative for Germany (AfD, 25 seats) and the Free

Democratic Party (FDP, 12 seats).

4 Flughafen Berlin Brandenburg Willy Brandt, IATA: BER, ICAO: EDDB. 5 As communicated to Scope by the City of Berlin (Fortschreibung des Berichts zur Entwicklung der Versorgungsausgaben, Senatsverwaltung für Inneres und Sport, 26 Aug 2015). 6 Article 5 Nr. 4 of Pension Reform Law 1998, implemented as §14a BBesG..

However, uncertainties around the Berlin-Brandenburg airport persist

Rising pension liabilities are only partially mitigated

Despite a new ruling coalition following last year’s elections adherence to prudent fiscal policy remains


14 July 2017 10/14

Figure 8: 2016 September Abgeordnetenhaus of Berlin election results (seats)

Source: Land of Berlin

Berlin’s administration strategic policy priorities include (i) adherence to prudent fiscal

policy aimed at capping costs and reducing Berlin’s direct debt (ii) promote the Land’s

economic development making Berlin more attractive to businesses and foreign direct

investments whilst being socially balanced.

It is Scope’s view that, in comparison to other major European cities, Berlin possesses a

relatively high wealth of potential urban development sites both inside the city and at its

margins. This potential space is one of the legacies of Berlin’s post-war division. Against

the backdrop of current population forecasts for 2030, this space offers potential for

development for various uses and plays a critical role in the “Urban Development

Concept Berlin 2030”.

38

3127

27

25

12

SPD CDU Die Linke Bündnis 90/Die Grünen AfD FDP


14 July 2017 11/14

I. Appendix: Accounts

EUR m 2010 2011 2012 2013 2014 2015 2016 2017B 2018F

Tax revenue 10,480 10,833 11,616 11,921 13,127 13,626 14,766 14,902 15,403

Transfers 7,331 7,346 8,399 8,355 8,181 8,495 8,593 8,438 8,599

Other operating revenue 1,416 1,606 1,541 1,544 1,620 1,688 2,020 1,590 1,615

Personnel 6,460 6,607 6,760 6,938 7,207 7,487 7,807 8,268 8,601

Materials and suppliers 4,927 5,141 5,349 5,611 5,977 6,311 7,153 6,717 6,905

Subsidies 6,256 6,363 6,270 6,498 6,563 6,646 6,873 7,125 7,408

Interest paid 2,208 2,225 2,097 1,921 1,759 1,607 1,384 1,709 1,410

Capital revenue 1,028 1,009 1,012 927 909 903 903 853 969

Capital expenditure 1,772 1,534 1,377 1,265 1,406 2,430 2,903 1,931 2,046

Balance before debt, movement -1,369 -1,075 715 513 925 231 163 33 216

New borrowing 10,701 9,294 7,820 7,384 8,064 7,136 7,039 7,022 6,262

Debt repayment -9,196 -8,065 -8,043 -7,872 -8,457 -8,350 -7,254 -7,127 -6,478

Overall result 136 154 491 25 532 -983 -52 -71 -

Short-term debt na na na na na na na na na

Long-term debt 60,869 62,914 62,256 61,607 60,804 59,906 59,436 59,680 59,464

Direct risk 60,869 62,914 62,256 61,607 60,804 59,906 59,436 59,680 59,464

Cash,

liquid deposits and sinking fund 191 137 - 135 - - - - -

Net direct debt 60,869 62,723 62,256 61,472 60,804 59,906 59,436 59,680 59,464

Guarantees 26,607 26,276 8,776 8,890 7,510 6,901 5,928 na na

Net indirect debt (public-sector

debt, excl. guarantees)* 32,213 32,716 32,981 34,229 30,806 33,088 32,943 na na

Overall risk 119,689 121,716 104,013 104,590 99,121 99,895 98,308 na na

FX debt 1.2% 1.2% 1.0% 0.7% 0.4% 0.4% 0.4% - -

Fixed-rate debt na na na na na 73.5% 75.8% na na

Population (m) 3.47 3.47 3.47 3.47 3.47 3.52 3.52 3.52 3.52


*Total liabilities of the companies that Berlin owns either wholly or in part.


14 July 2017 12/14

II. Appendix: Financial ratios

2010 2011 2012 2013 2014 2015 2016 2017B 2018F

Financial performance ratios

Operating balance/operating revenue, % 8.2% 8.5% 14.7% 12.7% 13.9% 14.1% 14.0% 11.3% 10.6%

Current balance/current revenue, % -3.2% -2.8% 5.0% 3.9% 6.2% 7.4% 8.5% 4.5% 5.0%

Balance before debt movement/total

revenue, % -6.8% -5.2% 3.2% 2.3% 3.9% 0.9% 0.6% 0.1% 0.8%

Overall result/total revenue, % 0.7% 0.7% 2.2% 0.1% 2.2% -4.0% -0.2% -0.3% -

Operating revenue growth, % na 2.9% 9.0% 1.2% 5.1% 3.8% 6.6% -1.8% 2.8%

Operating expenditure growth, % na 2.6% 1.5% 3.6% 3.7% 3.5% 6.8% 1.3% 3.6%

Debt ratios

Direct debt growth,% na 3.4% -1.0% -1.0% -1.3% -1.5% -0.8% 0.4% -0.4%

Direct debt, % operating revenue 316.6% 318.0% 288.8% 282.3% 265.2% 251.6% 234.2% 239.4% 232.1%

Net direct debt & guaranteed debt, %

operating revenue 455.0% 450.8% 329.5% 323.1% 298.0% 280.6% 257.5% na na

Overall debt risk (incl. guarantees), %

operating revenue 622.5% 615.2% 482.5% 479.3% 432.3% 419.6% 387.3% na na

Interest paid/operating revenue, %, (right) 11.5% 11.2% 9.7% 8.8% 7.7% 6.7% 5.5% 6.9% 5.5%

Debt service/operating revenue, % 36.3% 29.5% 27.6% 27.3% 29.2% 28.3% 23.1% 21.7% 19.8%

Debt service/operating balance, % 441.4% 348.6% 187.2% 214.7% 210.6% 200.4% 165.5% 192.1% 187.5%

Operating balance/interest paid, (x) 71.7% 75.3% 151.5% 144.3% 180.8% 209.4% 256.2% 165.0% 191.7%

Proportion of variable-interest debt,

% of direct debt na na na na na 73.5% 75.8% na na

Proportion of FX debt, % of direct debt 1.2% 1.2% 1.0% 0.7% 0.4% 0.4% 0.4% - -

Direct debt per capita, EUR 17542.4 18131.7 17942.0 17755.0 17523.5 17018.8 16885.3 16954.5 16893.2

Payback ratio

(direct debt/current balance) -97.4 -114.3 57.6 72.4 42.8 34.1 27.5 53.7 46.0

Revenue ratios

Operating revenue/total revenue, % 94.9% 95.1% 95.5% 95.9% 96.2% 96.3% 96.6% 96.7% 96.4%

Modifiable tax revenue/operating revenue,

% 13.8% 14.0% 13.7% 14.7% 14.8% 15.8% 16.1% - -

Current transfers received/operating

revenue, % 38.1% 37.1% 39.0% 38.3% 35.7% 35.7% 33.9% 33.8% 33.6%

Total revenue per capita, EUR 5,837.3 5,992.8 6,504.1 6,555.6 6,869.8 7,020.6 7,466.8 7,324.7 7,552.8

Expenditure ratios

Personnel expenditure, % of operating

expenditure 36.6% 36.5% 36.8% 36.4% 36.5% 36.6% 35.8% 37.4% 37.5%

Transfers paid, % of operating expenditure 35.5% 35.1% 34.1% 34.1% 33.2% 32.5% 31.5% 32.2% 32.3%

Capital expenditure, % total expenditure 9.1% 7.8% 7.0% 6.2% 6.6% 10.6% 11.7% 8.0% 8.2%

Total capital expenditure per capita, EUR 510.8 442.0 397.0 364.7 405.3 690.3 824.6 548.6 581.3

Capital expenditure ratios

Current balance/capital expenditure,% 35.2% 35.9% 78.4% 67.2% 101.1% 72.4% 74.5% 57.6% 63.2%

Capital revenue/capital expenditure,% 58.0% 65.8% 73.5% 73.3% 64.7% 37.2% 31.1% 44.2% 47.4%

Net debt movement/capital expenditure,% 84.9% 80.1% -16.2% -38.5% -28.0% -50.0% -7.4% -5.4% -10.6%

Cash and liquidity management

Overall result (cash balance)/operating

revenue, % 0.7% 0.8% 2.3% 0.1% 2.3% -4.1% -0.2% -0.3% -

Cash balance/debt service, % -2.7% -2.3% - -2.3% - - - - -



14 July 2017 13/14

III. Appendix: Peer comparison (16 Länder)

Figure 8: Operating balance/operating revenue, % Figure 9: Balance before debt movement/total revenue, %

Source: German Ministry of Finance, Calculations Scope Ratings AG


Figure 10: Interest paid/operating revenue, % Figure 11: Direct debt/operating revenue, %



Figure 12: Personnel expenditure/operating expenditure, % Figure 13: Capital expenditure/total expenditure, %



-5%

0%

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012 2013 2014 2015 2016

Berlin

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2010 2011 2012 2013 2014 2015 2016

Berlin

0%

5%

10%

15%

20%

25%

2010 2011 2012 2013 2014 2015 2016

Berlin

0%

100%

200%

300%

400%

500%

600%

2010 2011 2012 2013 2014 2015 2016

Berlin

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015 2016

Berlin

0%

5%

10%

15%

20%

25%

30%

2010 2011 2012 2013 2014 2015 2016

Berlin


14 July 2017 14/14

IV. Regulatory disclosures

Regulatory disclosures

This credit rating and/or rating outlook is issued by Scope Ratings AG.

Rating prepared by Dr Ilona Dmitrieva, Lead Analyst

Person responsible for approval of the rating Dr Stefan Bund, Chief Analytical Officer

The ratings /outlook was first assigned by Scope on 14 July 2017.

Deviation of the publication of sovereign ratings or related rating outlooks from the calendar shall only be possible where

necessary for the credit rating agency to comply with its obligations under Article 8(2), Article 10(1) and Article 11(1) and shall be

accompanied by a detailed explanation of the reasons for the deviation from the announced calendar.

Rating Committee: The main points discussed were (1) the impact of the recent reform of equalization system on the institutional

framework, (2) Berlin’s budget performance and debt sustainability developments, (3) the liquidity cash management and access to

capital markets, (4) Berlin’s exposure to contingent liabilities, (5) the double status of city-land and General Government capital, (6)

peers consideration.

Solicitation, key sources and quality of information

The rating was requested by the rated entity. The rated entity participated in the ratings process. Scope had access to accounts,

management and/or other relevant internal documents for the rated entity.

The following material sources of information were used to prepare the credit rating: Bundesfinanzministerium, Land Berlin,

Statistisches Bundesamt. Scope considers the quality of information provided to Scope on the rated entity or instrument to be

satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and

accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.

Prior to publication, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds upon

which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Conditions of use / exclusion of liability

© 2017 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings AG, Scope Analysis, Scope Investor Services

GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions

and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot,

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transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity,

legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit,

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land of berlin · the land of berlin aaa rating is underpinned by a very stable and supportive...

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